Bowen v. Georgetown University Hospital
488 U.S. 204 (1988)
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Rule of Law:
An administrative agency does not have the power to promulgate legislative rules that have retroactive effect unless Congress has expressly authorized it to do so in the enabling statute.
Facts:
- The Secretary of Health and Human Services (the Secretary) is responsible for reimbursing health care providers for costs under the Medicare program.
- On June 30, 1981, the Secretary issued a new cost-limit schedule that altered the 'wage index' calculation by excluding wages paid by federal government hospitals.
- This change resulted in lower Medicare reimbursement payments for a group of hospitals in the District of Columbia.
- After a federal court invalidated the 1981 rule on procedural grounds, the Secretary reverted to the pre-1981 wage-index formula, resulting in higher payments to the hospitals for the affected period.
- In November 1984, the Secretary reissued the 1981 wage-index rule and made it retroactive to July 1, 1981.
- As a result of the retroactive rule, the respondent hospitals were required to return over $2 million in reimbursement payments they had received under the pre-1981 formula.
Procedural Posture:
- Various hospitals sued the Secretary of Health and Human Services in the U.S. District Court for the District of Columbia to invalidate the 1981 wage-index rule.
- On April 29, 1983, the District Court found the rule invalid because the Secretary had failed to follow APA notice-and-comment procedures.
- The Secretary did not appeal this decision.
- After the Secretary reissued the rule retroactively in 1984, a group of respondent hospitals, having exhausted their administrative remedies, filed suit in the U.S. District Court for the District of Columbia seeking to invalidate the retroactive rule.
- The District Court granted summary judgment for the respondent hospitals.
- The Secretary (appellant) appealed to the U.S. Court of Appeals for the District of Columbia Circuit.
- The Court of Appeals affirmed the District Court's decision, holding that both the Medicare Act and the Administrative Procedure Act bar such retroactive rules.
- The U.S. Supreme Court granted certiorari to review the decision of the Court of Appeals.
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Issue:
Does the Medicare Act grant the Secretary of Health and Human Services the authority to promulgate cost-limit regulations with retroactive effect?
Opinions:
Majority - Justice Kennedy
No. The Medicare Act does not authorize the Secretary of Health and Human Services to promulgate retroactive cost-limit rules. Retroactivity is disfavored in the law, and a statutory grant of legislative rulemaking authority will not be understood to include the power to promulgate retroactive rules unless Congress conveys that power in express terms. The court rejected the Secretary's argument that the Act's provision for 'suitable retroactive corrective adjustments' provided this authority, finding that the statutory language and structure limit this provision to case-by-case adjudicative adjustments for individual providers, not broad, retroactive rulemaking. The general rulemaking provisions of the Medicare Act contain no express grant of retroactive authority, and the legislative history, along with the agency's own long-standing practice, indicates that Congress intended cost-limit rules to be prospective.
Concurring - Justice Scalia
No. While agreeing with the majority's conclusion, the Administrative Procedure Act (APA) independently forbids retroactive rulemaking. The APA's definition of a 'rule' as an agency statement of 'future effect' (5 U.S.C. § 551(4)) must be read to mean that rules have legal consequences only for the future. This interpretation is necessary to maintain the fundamental APA dichotomy between rulemaking (which is quasi-legislative and prospective) and adjudication (which is quasi-judicial and determines past and present rights). An agency cannot alter the past legal consequences of past actions through rulemaking unless Congress provides special authorization, as rulemaking is meant to prescribe what the law will be, not what it was.
Analysis:
This decision establishes a strong presumption against an agency's power to engage in retroactive rulemaking, solidifying it as an exception rather than a routine power. By requiring a clear, express statement from Congress, the Court significantly limited agency discretion and prevented agencies from using retroactive rules to 'cure' prior procedural defects. This reinforces the importance of following proper Administrative Procedure Act (APA) notice-and-comment requirements from the outset, as an agency cannot simply fix its mistake and retroactively apply the corrected rule. The ruling protects the reliance interests of regulated parties, who can depend on the law as it exists without fear of past liabilities being created by future rules.
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